TScan Therapeutics, Inc. — Q3 2021 Form 10-Q
Reporting period: Three and nine months ended September 30, 2021. Unaudited figures below are in U.S. dollars; financial statement amounts are shown in millions unless stated otherwise.
Business context
TScan is a preclinical-stage biotechnology company developing T cell receptor-engineered T cell (TCR-T) therapies for cancer. Its lead liquid-tumor candidates, TSC-100 and TSC-101, are being developed for hematologic malignancies following stem cell transplantation; the company is also developing candidates for solid tumors. It has no approved products and has not generated product sales.
Key financial results
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Collaboration and license revenue | $2.412 | $0.290 | $7.287 | $0.290 |
| Research and development expense | $14.206 | $5.813 | $32.346 | $14.613 |
| General and administrative expense | $4.048 | $1.648 | $9.380 | $4.100 |
| Net loss | $15.839 | $7.170 | $34.425 | $18.320 |
| Basic and diluted net loss per share | $0.80 | $7.16 | $4.55 | $20.44 |
Revenue came from collaboration and licensing, principally the Novartis agreement; there was no product revenue. No product gross margin is reported. Operating losses widened as development and company costs increased. The filing reports no interest-bearing debt; total liabilities were $30.815 million, including deferred revenue and operating lease liabilities.
At September 30, cash and cash equivalents were $182.312 million, versus $34.791 million at December 31, 2020. Current assets were $187.003 million and current liabilities $22.944 million. The company reported a $77.958 million accumulated deficit. For the first nine months, operating activities used $34.297 million, investing activities used $7.730 million, and financing activities provided $189.548 million. Financing included $99.730 million net proceeds from Series C preferred stock and $89.647 million net IPO proceeds. Property and equipment purchases were $7.730 million.
Material changes and notable items
- Q3 revenue increased $2.122 million year over year, while net loss increased $8.669 million. Nine-month revenue rose $6.997 million and net loss increased $16.105 million year over year.
- R&D expense growth was driven mainly by preclinical studies, laboratory supplies and research materials, alongside increased personnel and facility costs. G&A growth reflected higher personnel, professional and other costs, including public-company expenses.
- The July 2021 IPO issued 6,666,667 voting common shares at $15.00 per share, generating $100 million gross proceeds and $89.6 million net proceeds. All preferred stock converted into common stock at the IPO closing.
- Novartis agreement revenue recognized in the first nine months was $7.0 million. The agreement provides a $20 million upfront fee and up to $10 million in research funding, plus potential development, regulatory and sales milestones and royalties. Deferred revenue associated with the agreement was $14.811 million at quarter-end.
- The company reported no material legal proceedings. Management said disclosure controls were effective as of September 30, 2021; it reported no material quarterly change in internal control over financial reporting.
Outlook, risks and contingencies
Management expects operating losses and expenses to increase as research programs advance, and states it will need substantial additional capital to develop candidates through approval and commercialization. The financial statement notes say cash at September 30 was expected to fund operations for at least the next 12 months; the MD&A estimates cash could fund operating expenses and capital expenditures into 2024, based on assumptions that may prove incorrect. These are not equivalent assurances of funding through product approval.
Management expected Novartis-related revenue to increase in Q4 2021 and into 2022. The company planned to submit IND applications for TSC-100 and TSC-101 in Q4 2021, for at least three of four solid-tumor candidates in the second half of 2022, and for the remaining candidate in 2023. These are forward-looking plans, not reported milestones achieved; the filing states candidates remained preclinical and IND-enabling work was not complete.
Key risks include preclinical or clinical failure, regulatory delays, manufacturing scale-up and quality challenges, reliance on third-party suppliers and limited-source materials, patient recruitment, competition, intellectual-property protection, and the need for additional funding. The company said it had not experienced material business disruption from COVID-19 to date, but noted potential effects on development, vendors, supply chains and timelines. A founder-affiliated entity is entitled under a royalty agreement to 1% of net sales of covered products, if any.
Important facts for investors to verify
- Whether the planned IND filings and subsequent clinical-development timelines were met, and what supporting data and regulatory feedback were obtained.
- Whether the estimated cash runway into 2024 remains valid as R&D spending, facility investment and public-company costs evolve; distinguish this estimate from the financial statements’ 12-month liquidity statement.
- How quickly Novartis deferred revenue is recognized, the remaining research obligations, and whether milestone or royalty payments become probable or are achieved.
- Whether manufacturing capacity, single- or limited-source inputs, and process validation can support clinical programs on schedule.
- The potential dilution from future financing and equity compensation, and the effect of development setbacks on the company’s ability to raise capital.